New Zealand Builder’s Results Tell a Tale of Two Economies

Fletcher Building has a foot on either side of the Tasman Sea – and with the outlook in Australia patchy at best, it’s thankful for its New Zealand exposure.

A crane operates on a construction site in Melbourne, Australia.

Carla Gottgens/Bloomberg

The building-supply and construction company is headquartered in New Zealand, but after a series of acquisitions over the past decade, it had found that a nearly equal proportion of its operating earnings came from Australia.

But that has changed. For the six months ended Dec. 31, operating earnings in local currencies were down 18% on-year in Australia and up 35% in New Zealand, the company said Thursday.

It’s an illustration of how the two economies, once so closely aligned, have diverged.

Australia’s economy, until recently among the fastest growing in the developed world, is now under pressure as a decade-long boom in mining investment tails off. Australia’s economy grew just 2.3% on-year in the third quarter of 2013, the most recent data available.

Australia is “really mixed,” Fletcher Building chief executive Mark Adamson said, with infrastructure spending suffering as the government contends with a budget deficit.

New Zealand’s economy, in contrast, is growing so fast that the central bank has warned it will likely have to raise interest rates early this year. Strong demand and high prices for its agriculture exports, together with the rebuild of Christchurch after a series of earthquakes, helped New Zealand’s economy grow 3.5% on-year in the third quarter.

“Six months ago we saw a definite improvement in Auckland and Christchurch, but now we’re starting to see that right across the country and right across the portfolio,” Mr. Adamson said. “It’s really a broad-based improvement.”

Profits for Fletcher Building’s infrastructure division were down 30% on-year in Australia for the six months through Dec. 31 and up 36% in New Zealand.

Despite the economies’ divergent paths, central banks in both countries are concerned about the possibility of a housing bubble. Yet this is playing out very differently in their residential building sectors.

With thousands of dwellings being built in Christchurch to replace those lost in the earthquakes, and government initiatives adding housing in Auckland to relieve a shortage there, things are buoyant in New Zealand.

In Australia, the outlook is better for multi-family dwellings such as apartment buildings than for single-family dwellings, Mr. Adamson said.

“The Australian housing market is recovering and the government is talking about plans for infrastructure spending, so there will be a point where we get both markets running,” Mr. Adamson said. “But it’s still a couple of years away.”

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